EMERGING MARKETS-Latin American markets tiptoe higher, Colombia's Senate approves 2026 budget

By Niket Nishant, Johann M Cherian and Pranav Kashyap

Oct 16 (Reuters) - Latin American markets crept higher on Thursday buoyed by growing hopes of U.S. rate cuts, even as some volatility lingered, but Brazil stole the spotlight as fiscal jitters and stalled tax reforms kept investors on edge amid fresh trade developments.

A gauge tracking Latin American equities .MILA00000PUS was up 0.2%, while a parallel index tracking regional currencies .MILA00000CUS was flat against the dollar =USD.

Colombia's peso COP= surged to a near one-month high, heading for its best day in over two months after the Senate gave final approval to the government's massive 546.9 trillion peso ($140.2 billion) 2026 budget. The move, which follows earlier backing from the lower house, now awaits President Gustavo Petro's signature — a step investors see as a signal of fiscal direction amid lingering economic uncertainty.

Colombian stocks .COLCAP rose 0.3%.

Brazilian markets were volatile, with the benchmark index .BVSP slipping 0.2% and the real BRL= drifting as investors weighed fresh fiscal plans after the Congress shelved a key tax overhaul. A government proposal to offer financial guarantees and tax incentives for strategic mineral projects added to the mix.

However, confidence in markets has stabilized, following last year's rout triggered by runaway spending and aggressive rate hikes. Analysts note the country's 15% rate keeps the real and local debt lucrative.

"The Brazilian government started to implement some budget cuts at the beginning of the year, and then the president asked for an extension of the budget," said Alfredo Coutino, director for Latin America at Moody's Analytics.

"He's asking for even more... because next year is election year and it is something that characterizes the Latin American economy, at least in the past 50 years."

President Luiz Inacio Lula da Silva is also set to hold negotiations with the U.S. on tariffs later on Thursday.

While easing hostilities in the Middle East and hopes of an interest rate cut by the U.S. Fed have put the main MSCI indexes on track for weekly gains, investors remain on edge as corporate earnings season gets underway.

"The reason why markets are doing so well despite political and geopolitical noise is that the macro backdrop is very good. It's a good environment that supports risk taking," said Lilian Chovin, head of asset allocation at Coutts.

Mexican stocks .MXX pared losses to jump 1.7%, while the peso MXN= was flat.

Technology stocks were among the biggest gainers in the country, with America Movil SAB AMXB.MX jumping 5% after reporting a more than threefold jump in third-quarter profit.

Argentina's markets wobbled, with the local stock index .MERV up 1% and the wholesale peso falling 1.4% — a sharp reversal after recent gains. The volatility came amid mixed signals from Washington, even as the U.S. unveiled a $20 billion currency swap framework to back President Javier Milei ahead of a pivotal election.

"Most important point of this financial support is that it helps to stop the uncertainty and to bring some relief to market instability," Coutino said.

Meanwhile, U.S. President Donald Trump authorized the CIA to conduct covert operations in Venezuela in a sharp escalation in efforts to pressure President Nicolas Maduro's government.

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